Risk Management – Exam 1 (Temple University – McCloskey),
2026 – Study Material and Practice Questions
Risk - ANS✔✔ the uncertainty concerning the occurrence of a loss
Loss Exposure - ANS✔✔ any situation or circumstance in which a loss is possible, regardless of
whether a loss actually occurs
Law of Large Numbers - ANS✔✔ as the number of exposure units increase, the more closely the
actual loss experience will approach the expected loss experience
Peril - ANS✔✔ the cause of the loss
Hazard - ANS✔✔ a condition that creates or increases the frequency or severity of a loss, or
both
Pure Risk - ANS✔✔ a situation in which there are only the possibilities of loss or no loss
Speculative Risk - ANS✔✔ a situation in which either profit, break even, or loss is possible
Diversifiable - ANS✔✔ a risk that affects only individuals or small groups and not the entire
economy
Nondiversifiable - ANS✔✔ a risk that affects the entire economy or large numbers of persons or
groups within the economy
Static - ANS✔✔ Risk that does not change significantly over time
, Dynamic - ANS✔✔ Risk that arises out of constantly changing circumstances
Subjective Risk - ANS✔✔ An individual view of uncertainty regarding risk; not easily measurable
Objective Risk - ANS✔✔ Based on data, experience, and other means; measures the actual loss;
more easily measurable
Direct Loss - ANS✔✔ The cost to replace or repair financial or physical assets
Indirect Loss - ANS✔✔ Extra expenses that are the result of a loss (i.e. Loss of Income)
Frequency - ANS✔✔ How often losses occure
Severity - ANS✔✔ How bad the loss is in terms of dollars
Physical Hazard - ANS✔✔ Examples of this include location, construction, and use
Moral Hazard - ANS✔✔ When behavior is different because of the existence of insurance
Morale Hazard - ANS✔✔ Carelessness concerning losses; has nothing to do with the existence
of insurance
Burden of Risk - ANS✔✔ Asks the question of what risks truly cost an organization or society
Expected Cost of Loss - ANS✔✔ The direct and indirect losses (financial losses, goodwill losses,
etc.)
2026 – Study Material and Practice Questions
Risk - ANS✔✔ the uncertainty concerning the occurrence of a loss
Loss Exposure - ANS✔✔ any situation or circumstance in which a loss is possible, regardless of
whether a loss actually occurs
Law of Large Numbers - ANS✔✔ as the number of exposure units increase, the more closely the
actual loss experience will approach the expected loss experience
Peril - ANS✔✔ the cause of the loss
Hazard - ANS✔✔ a condition that creates or increases the frequency or severity of a loss, or
both
Pure Risk - ANS✔✔ a situation in which there are only the possibilities of loss or no loss
Speculative Risk - ANS✔✔ a situation in which either profit, break even, or loss is possible
Diversifiable - ANS✔✔ a risk that affects only individuals or small groups and not the entire
economy
Nondiversifiable - ANS✔✔ a risk that affects the entire economy or large numbers of persons or
groups within the economy
Static - ANS✔✔ Risk that does not change significantly over time
, Dynamic - ANS✔✔ Risk that arises out of constantly changing circumstances
Subjective Risk - ANS✔✔ An individual view of uncertainty regarding risk; not easily measurable
Objective Risk - ANS✔✔ Based on data, experience, and other means; measures the actual loss;
more easily measurable
Direct Loss - ANS✔✔ The cost to replace or repair financial or physical assets
Indirect Loss - ANS✔✔ Extra expenses that are the result of a loss (i.e. Loss of Income)
Frequency - ANS✔✔ How often losses occure
Severity - ANS✔✔ How bad the loss is in terms of dollars
Physical Hazard - ANS✔✔ Examples of this include location, construction, and use
Moral Hazard - ANS✔✔ When behavior is different because of the existence of insurance
Morale Hazard - ANS✔✔ Carelessness concerning losses; has nothing to do with the existence
of insurance
Burden of Risk - ANS✔✔ Asks the question of what risks truly cost an organization or society
Expected Cost of Loss - ANS✔✔ The direct and indirect losses (financial losses, goodwill losses,
etc.)
